Life Insurance

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Life Insurance

Group life insurance is the most common type of insurance perk that 85% of employers provide to their employees. Meanwhile, 59% of employees mentioned that group life insurance is also the preferred type of life insurance to purchase.

Insurance Type Preferred by Employers

  • Group life insurance is the most common type of insurance perk that companies provide to their employees.
  • Around 85% of the companies surveyed offer this type of life insurance.
  • These firms shoulder the cost of this insurance.
  • Meanwhile, around 80% of the firms surveyed provide supplemental life insurance for their personnel.
  • In the case of life insurance for dependents, around 70% of the firms offer this perk.
  • For those companies that are offering group life insurance, they will need to determine those employees who will be able to avail of this benefit.
  • Companies typically offer group-term life insurance for their full-time personnel.
  • This is beneficial also for the company if they can obtain reduced rates and avoid individual medical evaluations with a larger group.
  • Some companies offer life insurance as a special perk to only a selected number of key personnel. However, this arrangement can prevent them from deducting the premiums for federal tax requirements unless they can comply with the special nondiscrimination requirements.
  • These nondiscrimination requirements were put in place to deter companies from offering this perk only to those who are earning the most.
  • The nondiscrimination requirements were also established to prevent firms from giving benefits that can limit the participation of those employees with lower salaries due to the price of the premium.
  • Group-term life insurance do not restrict an employee's eligibility to avail of this plan if any of these terms apply: 70% of all personnel can avail of the plan, at least 85% of those employees who availed of the plan are not key personnel, and the plan is advantageous for those employees who are eligible based on a classification that is established by the company and deemed by the IRS as nondiscriminatory towards key personnel.
  • Group-term life insurance, the most commonly provided type of company-sponsored life insurance, also provides life insurance to small sub-segments of personnel if the distinctions are dependent on their marital status, work responsibilities, salaries, duration of service, availment of a "pension, profit-sharing, stock bonus, or accident and health plan, and other employment-related factors."
  • In general, group-term insurance plans are nondiscriminatory as the premium cost is typically based on a certain portion of each employee's salary.
  • If all terms are met, the premium cost for the initial $50,000 of group-term life insurance will not be part yet of the employee's gross salary for tax reasons.
  • If the requirements were lacking, the company can still grant insurance. However, the face value of the plan will be considered as taxable compensation to the personnel.
  • Once a company determined already who should avail of its life insurance benefits, it needs to determine the type of life insurance perks that it needs to provide and the amount of coverage.
  • Other types of life insurance include term insurance. This type of plan is effective only for a certain time frame.
  • The overall company-provided term life insurance will remain effective until the employee resigns from the company.
  • However, group-term life insurance is available only for employees and not for their spouses and kids.
  • To avail of the tax deduction benefit of group-term life insurance, companies must have a minimum of 10 full-time personnel.
  • This 10-employee constraint is not applicable if all full-time employees are covered if the calculation method to determine the amounts of insurance is fixed, and no physical evaluation is needed to avail of coverage.
  • Other types of insurance that companies can provide include the group accidental death and dismemberment. This is typically referred to as "AD&D" and can grant benefits to the beneficiaries if death happened as a result of an accident or there is loss of limbs.
  • Employers can also pay for business travel accident insurance of its employees. This plan covers the death of a personnel while on a business trip.
  • This may not be beneficial to the employer if its employees don't have any need for frequent trips.
  • Another type of insurance that employers can provide is split-dollar life insurance. This plan pays the beneficiaries in the event of an employee's death and sends back the premiums that were given to the employer.
  • This insurance is usually paid jointly by the company and the employee. It usually includes a large investment element.
  • This type of insurance is usually reserved for key employees only.
  • Companies can also opt to add life insurance plan riders. These are added benefits to a current insurance policy.
  • Insurance plans can be customized to include an unlimited number of riders that can be added to a plan.

Workers Availing of Life Insurance

  • Based on a Harris survey, 28% of U.S. employees stated that they have voluntary group life insurance that is paid for by their employers. Around 31% of male employees have this benefit compared to 24% of female employees.
  • Twenty-nine percent of employees who within the 18 to 34 years old age bracket have voluntary group life insurance paid for by their employers. Next to them, 28% of those who are between 35 to 44 years old have this benefit.
  • Those with annual household incomes that fall between "$75,000 and $99,999 are more likely than those with annual household incomes of less than $50,000" to avail of voluntary group life insurance via their employers (35% vs. 17%).
  • Around 59% of employees mentioned that they don't have employer-paid group life insurance as their employers don't pay for this benefit.
  • These employees mentioned that they are willing to buy one if it will be an option.
  • Employees want to have insurance in order to protect themselves and their loved ones from future financial problems.
  • The respondents also stated that they perceive group life insurance as a precious job perk as this is usually unavailable to them to buy individually.
  • Around 53% mentioned that having group life insurance provides them with the "peace of mind" that they are protected in the event of future tragedies.